Paycheck Fairness and Market Failure

The debate over this proposed legislation reveals serious flaws in reasoning about the impact of public efforts to promote fair pay. Recent academic research suggests that many women are underpaid for the same reason that many chief executives may be overpaid — because the labor market doesn’t work according to the standard textbook model based on impersonal forces of supply and demand.

 

The Paycheck Fairness Act would have required employers to give a “business” reason for paying men and women different wages for equal work. It would also have prohibited retaliation against employees who revealed wage information.

Criticisms of the proposed legislation took several forms. A common claim was that it would do more harm than good, because pay discrimination is not the most important cause of gender disparities. Conservatives are not the only ones who insist that women are paid less primarily because they choose to devote more time to family responsibilities than men do. The New York Times columnist Eduardo Porter recently articulated a similar argument.

But pay discrimination and choices to take time out of paid employment are complementary rather than competing explanations of gender differences in pay. Women who are paid less — or who anticipate fewer opportunities for promotion — than their male counterparts are more likely to drop out of paid employment. Their choices represent, in part, a response to discrimination.

 

If a woman does drop out for a while, an employer who pays her less is off the hook. Case law shows that a lower level of experience on the job is typically considered a bona fide “business” reason for paying someone less. In herdiscerning analysis of the impact of the Equal Pay Act passed in 1963, a University of Maryland law professor, Deborah Thompson Eisenberg, points out that the Paycheck Fairness Act would have simply codified majority interpretations of that law.

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